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Europe’s Anemic Growth: It’s the Money Supply, Stupid
From Steve Hanke at Cato.
"Growth in the Eurozone has consistently come in under consensus estimates. It missed the mark again in the second quarter of 2015, posting an anemic GDP quarterly growth rate of 0.3%. Europe’s “Big Three”—Germany, France, and Italy—all contributed heavily to the second quarter’s weak performance.
I am not surprised by Europe’s sputtering performance. The growth
rate of the broadly determined money supply (M3) is a strong indicator
of the economy’s course. Since the collapse of Lehman Brothers Holdings
Inc. in September of 2008, the growth of M3 in the Eurozone has been
weak. This, in large part, is because of more stringent capital asset
requirements for banks (read: Basel III) and new bank regulations. These
have held down the growth of bank money, which accounts for the lion’s
share of broad money.
Since the ECB adopted quantitative easing (QE) in March of 2015, growth
of M3 has accelerated, and the portion of M3 accounted for by state
money has expanded, too. In consequence, the future course for Eurozone
growth holds some promise. Both state money, as well as bank money are
accelerating. This is a positive development.
It is worth reporting that Bulgaria, which is part of the European
Union (EU), but not a member of the Eurozone, continue to outperform the
average EU member country. This is thanks to its currency board system."
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